September 22, 2023 – The financial services industry is perpetually in a state of change. From embracing digital banking in the 2000s, to the rise of fintech, banking-as-a-service, and all of the new options available to consumers today, institutions have always faced a growing need to evolve. Today is no different. Financial services firms must strategically differentiate themselves from the rest of the industry, whether that’s through new products, more competitive pricing, or by adopting tech-enabled services, according to a recent report from JM Search’s Kate Gerard and Bill Borkovitz.
“But there is one time-tested way for firms to set themselves apart in a way that can pay dividends not only today but over the long haul: talent,” the study said. “Winning in a rapidly changing competitive environment comes down to having the skills in place to embrace change and lead with authority. Companies that prioritize hiring the right people tend to share several winning attributes – better customer experiences, longer lasting partnerships, and, ultimately, better revenue performance.”
How should financial services firms prioritize talent now? “Everyone looks good in an expanding market,” said Ms. Gerard. “That’s why now is the time to upgrade talent for tougher market conditions, when they can have an outsized impact on performance. This is particularly important during evolutionary periods when new technologies and products are changing the face and function of the industry. It will take specialized talent for firms to adapt to this new reality, and it is critical that those with the right skills are working in the highest impact roles.”
“Fitting the right faces to the right responsibilities also comes with the benefit of preparing the firm for the next downturn,” said Mr. Borkovitz. “Those who know how to thrive in a difficult market also know how to build resilient systems that can weather future challenges. What’s more, cost cutting isn’t always the answer, particularly when there is an opportunity to add talent and grow while competitors shed qualified people.”
Where can these people be found? “Too often, financial services source talent from within the industry, poaching potential hires from competitors with the expectation that those prospects will have the necessary skills to hit the ground running,” Ms. Gerard said. “But this approach can turn into a liability, both in terms of access to new talent as well as new ideas. To truly differentiate in the market, those in financial services should look outside the industry at candidates in adjacent, tech-focused businesses and prioritize fresh, new approaches to the work vs. copying what every other firm is doing. High tech is a natural choice, but cybersecurity, artificial intelligence, and even manufacturing are growth areas that employ a lot of tech talent and are worth consideration.”
Invest Strategically in Innovation
“Banking was an early adopter of digital products and experiences, with the first web and mobile banking services dating back to the early 2000s,” Mr. Borkovitz said. “Those efforts have made the industry vastly more accessible to the everyday American, and digital banking as a whole represents the next generation of financial services, but there is always room for improvement. What’s the next step in this evolution for those institutions looking to gain or maintain a competitive advantage?”
It’s important to remember that digital transformation in the financial industry is about more than just technology and processes, according to Ms. Gerard. “Talent, mindset and organizational culture are also key factors, more so than in other industries given banking’s long entrenched conservative approach to its business,” she said. “That’s why strategic investment in the next phase of tech-enabled innovation – including AI for personalized recommendations and insights, cybersecurity to protect customer data and prevent cyber attacks, and customer service chatbots for real-time assistance – needs to start with people.”
Mr. Borkovitz says that by targeting and hiring the talent needed to support those efforts, firms can ensure that they are well positioned to claim a greater share of the market going forward.
Ignore Geography to Source the Best Talent
“Not long ago, financial services firms were geographically limited in who they could hire,” said Ms. Gerard. “Those based in locations with a lot of skilled talent, such as New York City, would typically come out on top by simple virtue of access and convenience. But things are changing. Remote and hybrid work environments have effectively eliminated this barrier to hiring, enabling firms to reap the benefits of broader access to talent and take a geographic agnostic approach to sourcing. By expanding their global reach beyond the traditional US-centric boundaries of financial services, firms will be better positioned to tap into a much larger talent pool and bring new skills to the table.”
“At the end of the day, the challenge for financial services is always to be proactive in adjusting to new conditions,” said Mr. Borkovitz. “Talent is the linchpin in all of this. That’s why, even now, the competition for new hires can be fierce. Firms that take a strategic approach to sourcing and managing the right skills for the road ahead will be better positioned for growth in a changing competitive environment.”
Choosing a CEO in Financial Services
Boards—especially within a financial services environment—play a critical role in providing direction on organizational strategy and performance while operating with shareholders, consumers, and key stakeholders top of mind. While the scope and oversight of boards have grown exponentially in recent years, there are two critical responsibilities that are especially pertinent for directors. These include approving a sound strategic plan for the organization, and, just as important, ensuring an effective CEO succession and selection process.
“We have been very busy and engaged with multiple financial roles across our firm,” said Tim Tolan, founder and managing partner of The Tolan Group. “We don’t see that slowing down any time soon. From CFO roles to controller and vice president roles, we’ve been steady. Private equity firms rely on us because of our deep understanding of the finance role in a portco and in our time to fill metric which continues to hover in the nine to 10 weeks from start to finish.”
Mr. Tolan points out that the “tenure for CFOs is now less than five years and it’s been steadily declining for years,” he said. “There are more demands being placed on CFOs today and many candidates simply don’t have the skills to reach for those new and expanded expectations. CFOs have seen themselves in high demand given this tight labor market and they seem more open to hear about new opportunities than before.”
“The size of the deals getting done seems smaller than before given the cost of capital, but make no mistake about it, deals are still getting done,” Mr. Tolan said. “PE firms are much more selective now than they were before but they have seemed to adapt to the new market dynamics. I am not an economist but I personally believe we have seen the slowdown/recession and are now seeing signs of a recovery. It’s been said that executive search is a leading indicator of what’s happening in the economy and if that’s true we are definitely seeing signs of a recovery.”
“Financial recruiting will continue to be a big part of the roles we are asked to fill and that won’t change for a while,” Mr. Tolan said. “I see us growing The Tolan Group interim rapidly as the needs for an interim finance executive will be critical to portcos to have someone in the chair while we engage in a search to find a permanent solution. We see solid growth in 2024 and more PE relationships as more and more PE firms turn to us for the results they count on. No longer is three to six months an acceptable time to fill from the large multi-national firms. PE firms want quality and they want speed, which is exactly what The Tolan Group delivers.”
Greater Sense of Caution
“There is and will be a greater sense of caution in financial services,” said Jeanne Branthover, managing partner and head of DHR’s global financial services practice. “They are utilizing advanced technology to reduce risk, increase productivity, optimize expenses, and while still focusing on superior customer service and customer experience. We have seen a busy second half of the year to find exceptional leaders that can handle a changing landscape to lead in uncertain times. We expect to remain busy throughout 2023. Firms are figuring out what core areas they will focus on, where they can continue to make money, and continue to create products and services to create revenue. All of this involves retaining and attracting the best talent at all levels in their organization.”
Diversity remains a top priority for financial services, according to Ms. Branthover. “It is a highly regulated industry and firms need to ensure they are compliant,” she said. “Finding skilled talent is a challenge especially in technology. Many candidates are no longer attracted to financial services. The jobs today are different than pre-pandemic. With the adoption of financial technology automation tools are changing the framework of the industry creating roles such as data scientists, cloud computing experts, etc. Firms are looking at their employees and asking do we have the right talent in the right job? Skills have changed. Therefore, we are seeing more confidential searches than ever before since the skills needed in many leadership roles are drastically different than before the pandemic.”
Many areas of financial services, such as hedge funds, private banking, family offices, insurance, etc., are thriving. “Fintech from start-ups to larger firms continue to grow, to be acquired, to acquire,” Ms. Branthover said. “There remains constant activity in the financial services sector. Firms are re-evaluating top talent replacing as necessary and continuing to focus on new products and services to gain market share.”
“We see our clients focused on high touch customer service and client experience,” Ms. Branthover said. “This affects the creation of superior products and services. We also see that clients are building strong teams in compliance, and regulatory areas. A focus continues and will continue to have the best talent possible in the treasury and financial leadership roles. The trend will also continue in technology as companies migrate to cloud and ensure that they have the technology necessary to compete in their market.”
“The interest in retained HR executive search in the financial services industry has been as high or higher than in previous years,” said Nat Schiffer, president and managing partner at The Christopher Group. “This is probably not surprising, considering that the stock market is near all-time highs. I suspect that as long as the broader stock market continues to be strong, the demand for executive HR search services will remain robust in this sector.”
“Recruiting for the financial services industry comes with its share of challenges,” Mr. Schiffer said. “This sector maintains an exceptionally high standard for quality of service and the pedigree of the candidates provided. Additionally, there’s a strong emphasis on speed and service, which raises the bar for talent acquisition providers. This intense competition for these skilled individuals adds another layer of complexity to the process.”
In regard to a possible market slowdown, Mr. Schiffer says that there have been a few moments of hesitation, but the expected recession that many people thought would happen hasn’t materialized. “Whether a recession happens and how it affects things depends on many factors,” he said. “If the economy keeps getting stronger and the Federal Reserve continues raising interest rates, it might make people even more worried.” Economics, he says, operates similarly to art, in that perceptions can transform into a self-fulfilling prophecy. “Fears can shape what actually happens in reality,” said Mr. Schiffer.
“I expect to continue to see strong demand for search services from PE firms and their portfolio companies in the coming year,” said Mr. Schiffer. “I anticipate their efforts to raise capital and add new companies to their portfolios will continue. This particular aspect is likely to contribute to the strong performance of our services throughout 2024 in the financial services sector.”
Evolving CFO Roles
Since COVID-19 struck, CFOs are being asked to play an ever-broader role. “The tumultuous environment companies are operating within demand a different skill-set in the CFO chair,” said ON Partners co-president Tim Conti. “CFOs are playing a critical strategic role in companies, not only to pull levers necessary to secure a company’s financial platform, but also to position the company to emerge in a strong competitive positioning in a marketplace where not all will survive. This requires the CFO to lead from the front, be strategic and savvy, to navigate a company through choppy waters. When boards and CEOs do not have confidence that they have this strategic CFO, then they have no choice but to seek out an alternative.”
“In times like these, where businesses demand hyper-agility, being a functional specialist isn’t good enough,” said Bryan Buck, partner at ON Partners. “It’s required now that CFOs can see around corners and understand the physical (and digital) trends that are reshaping their world – and then act quickly. They need to think like P&L owners – not like accountants. Regardless of the product or service their company offers, customer expectations have changed. And the CFOs in highest demand right now are the ones who have proven to be nimble and business-focused enough to drive organization’s to where the puck is moving (both organically and inorganically).”
This business environment is also putting more pressure on CFOs. “There’s definitely more need for CFOs to operate with transparency around the realities of the market conditions, how those conditions are impacting the business in the short and long term, and what strategic steps are being taken to address the challenges faced,” said Mr. Conti. “Shareholders understand that market conditions are challenging, and they’ll be more patient in these unique times, but only if they have confidence in the CFO’s leadership and strategy.”
“Yes – and it’s industry-agnostic,” Mr. Buck added. “For public companies specifically, those in negatively impacted sectors are trying to survive the rapid slow down, and maintain various levels of ongoing business operations, while planning and positioning for a potential recovery that could happen within the next few quarters…or the next few years,” he said. “Public finance leaders on the other end of that spectrum are seeing tremendous growth and demand, but they’re also cognizant that current share price reflects Wall Street’s expectation of perfection – leaving no room for quarterly missteps.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media